Telephone: (613) 954-8585
Fax: (613) 990-1233
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XXXXX
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File: 11660-9/3105(wh)
XXXXX 94-03-11
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XXXXX
Thank you for your letter of August 5, 1992, and telephone conversations between yourself and John Walsh of my staff, requesting confirmation that Revenue Canada will accept a joint venture election between your client and the other joint venture participants effective September 1, 1991, and that Revenue Canada agrees not to adjust the GST accounting your client has used to date.
Our understanding of the relevant facts is as follows:
1. Your client is in the business of selling "licenses" in seismic information, related to a particular field location, to oil and gas companies.
2. Once your client has sold a certain number of "licenses" your client enters into an agreement with a seismic contractor to acquire the raw seismic data.
3. Occasionally the agreements your client enters into with the seismic contractors specify that the contractor will undertake the expenses of the field work and that your client will be responsible for the processing, marketing and administrative costs associated with the seismic operation.
4. This seismic operation involves obtaining data on the geological structure of the earth's crust by reading shock waves that have been reflected off geological formations back to the surface of the earth. The data is then sent to a seismic processor who uses computer hardware to process the data into useful seismic information.
5. This information is presented in a format that can be interpreted thereby permitting the identification of favourable locations to drill an oil or gas well.
6. Each "licensee" in a particular location then receives, under a licence from your client, the right to use the seismic information for a certain period of time to determine the potential oil and or gas presence of the particular location.
7. There can be a number of "licensees" utilizing this information and they do not necessarily know who the other "licensees" are. The "licensees" share the information in order to reduce their costs for the information.
8. Once the license a person holds expires, your client may sell the license to another party.
9. Licence revenues obtained as a result of the seismic operation are split between your client and the seismic contractor.
10. No joint venture elections have been entered into by your client, even though your client may have formed joint ventures with the seismic contractor. Your client has, however, collected and remitted GST on its share of the revenues and on the contractors' share. However, the contractors should have remitted GST on their share of the revenues.
11. All the above transactions are between registrants involved in commercial activities.
Interpretation Requested:
XXXXX is requesting on behalf of their client that the joint venture elections between their client and the other participants in the joint ventures be retroactive to September 1, 1991.
XXXXX is also requesting that Revenue Canada, Excise agree not to adjust the GST accounting their client has used to date.
Interpretation Given:
Pursuant to section 273 of the Excise Tax Act, as amended by S.C. 1993, c. 27, an operator and a participant must indicate an effective date when they jointly elect to designate the operator as the person who is responsible for accounting for the tax. Therefore, provided the conditions in the preamble to subsection 273(1) are satisfied (ie. they are involved in a joint venture, the operator is registered and the joint venture agreement is evidenced in writing) they can make the election effective September 1, 1991.
Further to your request that Revenue Canada, Excise agree not to adjust the GST accounting your client has used to date, we note that where a person is liable to collect and account for GST on a taxable supply, no provisions exist in the Excise Tax Act that would permit the Department to relieve a person of that liability. However, on June 10, 1993, legislative amendments to the Excise Tax Act became law, which allow departmental officials to waive or cancel penalty and interest charges where extraordinary circumstances prevented a registrant from complying with the legislation. In addition the Department's fairness package says that enforcement responses when a registrant does not comply with the legislation must be proportionate and appropriate to the gravity of the non-compliance.
All requests for waiver or cancellation of penalty and interest or for relief under the fairness package must, however, be directed to the District Excise Office in your client's area, which is responsible for deciding such matters.
These interpretations are based upon our current understanding of the Excise Tax Act and regulations thereunder in their present form and do not take into account the effects of any proposed or future amendments to the Act or future changes in interpretation.
Further, while we trust that our comments are of assistance to you, we would advise that they do not constitute a GST ruling and are, therefore, not binding upon the Department in respect of any particular fact situation.
If you require additional information in respect of this matter, please contact Patrick Banham at (613) 952-8807 or Wendy Houston at (613) 952-8812.
Yours sincerely,
H.L. Jones Director
General Tax Policy
Policy and Legislation
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